PRINCIPAL FUNDS, INC.
SUB-ADVISORY AGREEMENT
AXA XXXXXXXXX INVESTMENT MANAGEMENT SUB-ADVISED FUNDS
AGREEMENT executed as of the 1st day of January, 2010, by and between
PRINCIPAL MANAGEMENT CORPORATION, an Iowa corporation (hereinafter called
"the Manager"), and AXA XXXXXXXXX INVESTMENT MANAGEMENT, LLC, a Delaware
Limited Liability Company (hereinafter called "the Sub-Advisor).
W I T N E S S E T H:
WHEREAS, the Manager is the manager and investment adviser to each Fund
of the Principal Funds, Inc., (the "Fund"), an open-end management
investment company registered under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Manager desires to retain the Sub-Advisor to furnish it with
portfolio selection and related research and statistical services in
connection with the investment advisory services for each series
identified in Appendix A ( hereinafter called the "Series"), which the
Manager has agreed to provide to the Fund, and the Sub-Advisor desires to
furnish such services; and
WHEREAS, The Manager has furnished the Sub-Advisor with copies properly
certified or authenticated of each of the following and will promptly
provide the Sub-Advisor with copies properly certified or authenticated
of any amendment or supplement thereto:
(a) Management Agreement (the "Management Agreement") with the Fund;
(b) The Fund's registration statement and financial statements as
filed with the Securities and Exchange Commission;
(c) The Fund's Articles of Incorporation and By-laws;
(d) Policies, procedures or instructions adopted or approved by the
Board of Directors of the Fund relating to obligations and services
provided by the Sub-Advisor.
NOW, THEREFORE, in consideration of the premises and the terms and
conditions hereinafter set forth, the parties agree as follows:
1. Appointment of Sub-Advisor
In accordance with and subject to the Management Agreement, the
Manager hereby appoints the Sub-Advisor to perform the services
described in Section 2 below for investment and reinvestment of the
securities and other assets of the Series, subject to the control
and direction of the Manager and the Fund's Board of Directors, for
the period and on the terms hereinafter set forth. The Sub-Advisor
accepts such appointment and agrees to furnish the services
hereinafter set forth for the compensation herein provided. The
Sub-Advisor shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or
authorized, have no authority to act for or represent the Fund or
the Manager in any way or otherwise be deemed an agent of the Fund
or the Manager. For the avoidance of doubt, the Manager authorizes
the Sub-Advisor to enter into trades as agent on behalf of the
Fund.
The services of the Sub-Advisor to the Fund and the Manager are not
to be deemed exclusive, and the Sub-Advisor will be free to render
similar services to others so long as its services to the Fund and
the Manager are not impaired thereby.
The Manager may, from time to time, make additions to, and
withdrawals from the Series assigned to the Sub-Advisor upon
providing reasonable prior notice. The Manager agrees that any
additions to the Series would not result in the Sub-Advisor being
the manager of 100% of the Series' assets; in the event the Sub-
Advisor is required to serve as the sole manager for the Series,
the Manager shall have the right to terminate this Agreement.
2. Obligations of and Services to be Provided by the Sub-Advisor
The Sub-Advisor will:
(a) Provide investment advisory services, including but not limited
to research, advice and supervision for the Series.
(b) Furnish to the Board of Directors of the Fund for approval (or
any appropriate committee of such Board), and revise from time
to time as economic conditions require, a recommended
investment program for the Fund consistent with the Series'
investment objective and policies.
(c) Implement the approved investment program by placing orders for
the purchase and sale of securities without prior consultation
with the Manager and without regard to the length of time the
securities have been held, the resulting rate of portfolio
turnover or any tax considerations, subject always to the
provisions of the Fund's Articles of Incorporation and Bylaws,
the requirements of the 1940 Act, as each of the same shall be
from time to time in effect.
(d) Advise and assist the officers of the Fund, as requested by the
officers, in taking such steps as are reasonably necessary or
appropriate to carry out the decisions of its Board of
Directors, and any appropriate committees of such Board,
regarding the general conduct of the investment business of the
Series.
(e) Maintain, in connection with the Sub-Advisor's investment
advisory services provided to the Series, its compliance with
the 1940 Act and the regulations adopted by the Securities and
Exchange Commission thereunder and the Series' investment
strategies and restrictions as stated in the Fund's prospectus
and statement of additional information, subject to receipt of
such additional information as may be required from the Manager
and provided in accordance with Section 11(d) of this
Agreement. The Sub-Advisor has no responsibility for the
maintenance of Fund records except insofar as is directly
related to the services it provides to the Series.
(f) Report to the Board of Directors of the Fund at such times and
in such detail as the Board of Directors may reasonably deem
appropriate in order to enable it to determine that the
investment policies, procedures and approved investment program
of the Series are being observed.
(g) Upon request, provide reasonable assistance in the
determination of the fair value of certain securities when
reliable market quotations are not readily available for
purposes of calculating net asset value in accordance with
procedures and methods established by the Fund's Board of
Directors.
(h) Furnish, at its own expense, (i) all necessary investment and
management facilities, including salaries of clerical and other
personnel required for it to execute its duties faithfully, and
(ii) administrative facilities, including bookkeeping, clerical
personnel and equipment necessary for the efficient conduct of
its duties under this Agreement.
(i) Open accounts with broker-dealers and futures commission
merchants on behalf of the Fund ("broker-dealers"), select
broker-dealers to effect all transactions for the Series, place
all necessary orders with broker-dealers or issuers (including
affiliated broker-dealers), and negotiate commissions, if
applicable. To the extent consistent with applicable law,
purchase or sell orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of the
Sub-Advisor. In such event allocation of securities so sold or
purchased, as well as the expenses incurred in the transaction,
will be made by the Sub-Advisor in the manner the Sub-Advisor
considers to be the most equitable and consistent with its
fiduciary obligations to the Fund and to other clients. The
Manager recognizes that, in some cases, this procedure may
limit the size of the position that may be acquired or sold for
the Series. The Sub-Advisor will report on such allocations at
the request of the Manager, the Fund or the Fund's Board of
Directors providing such information as the number of
aggregated trades to which the Series was a party, the broker-
dealers to whom such trades were directed and the basis for the
allocation for the aggregated trades. The Sub-Advisor shall
use its best efforts to obtain execution of transactions for
the Series at prices which are advantageous to the Series and
at commission rates that are reasonable in relation to the
benefits received. However, the Sub-Advisor may select brokers
or dealers on the basis that they provide brokerage, research
or other services or products to the Sub-Advisor. To the extent
consistent with applicable law, the Sub-Advisor may pay a
broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission or
dealer spread another broker or dealer would have charged for
effecting that transaction if the Sub-Advisor determines in
good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research products
and/or services provided by such broker or dealer. This
determination, with respect to brokerage and research products
and/or services, may be viewed in terms of either that
particular transaction or the overall responsibilities which
the Sub-Advisor and its affiliates have with respect to the
Series as well as to accounts over which they exercise
investment discretion. Not all such services or products need
be used by the Sub-Advisor in managing the Series. In addition,
joint repurchase or other accounts may not be utilized by the
Series except to the extent permitted under any exemptive order
obtained by the Sub-Advisor provided that all conditions of
such order are complied with.
(j) Maintain all accounts, books and records with respect to the
Series as are required of an investment advisor of a registered
investment company pursuant to the 1940 Act and Investment
Advisor's Act of 1940 (the "Investment Advisor's Act"), and the
rules thereunder, and furnish the Fund and the Manager with
such periodic and special reports as the Fund or Manager may
reasonably request. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Sub-Advisor hereby agrees
that all records that it maintains for the Series are the
property of the Fund, agrees to preserve for the periods
described by Rule 31a-2 under the 1940 Act any records that it
maintains for the Fund and that are required to be maintained
by Rule 31a-1 under the 1940 Act, and further agrees to
surrender promptly to the Fund any records that it maintains
for the Series upon request by the Fund or the Manager,
provided however, the Sub-Advisor may keep copies of such
records in order to meet its own books and records obligations.
(k) Observe and comply with Rule 17j-1 under the 1940 Act and the
Sub-Advisor's Code of Ethics adopted pursuant to that Rule as
the same may be amended from time to time. The Manager
acknowledges receipt of a copy of Sub-Advisor's current Code of
Ethics. Sub-Advisor shall promptly forward to the Manager a
copy of any material amendment to the Sub-Advisor's Code of
Ethics.
(l) From time to time as the Manager or the Fund may request,
furnish the requesting party reports on portfolio transactions
and reports on investments held by the Series, all in such
detail as the Manager or the Fund may reasonably request. The
Sub-Advisor will make available its officers and employees to
meet with the Fund's Board of Directors at the Fund's principal
place of business on due notice to review the investments of
the Series.
(m) Provide such reasonable information as is customarily provided
by a sub-advisor and may be required for the Fund or the
Manager to comply with their respective obligations under
applicable laws, including, without limitation, the Internal
Revenue Code of 1986, as amended (the "Code"), the 1940 Act,
the Investment Advisers Act, the Securities Act of 1933, as
amended (the "Securities Act"), and any state securities laws,
and any rule or regulation thereunder. Sub-Advisor will advise
Manager of any changes in Sub-Advisor's managing members within
a reasonable time after any such change. Manager acknowledges
receipt of Sub-Advisor's Form ADV Part II more than 48 hours
prior to the execution of this Agreement.
(n) [Intentionally omitted.]
(o) Have the responsibility and authority to vote proxies solicited
by, or with respect to, the issuers of securities held in the
Series in accordance with the Sub-Advisor's proxy policies and
procedures. The Manager shall cause to be promptly forwarded
to Sub-Advisor all proxy solicitation materials that it
receives and shall assist Sub-Advisor in its efforts to conduct
the proxy voting process. It is understood and agreed that the
Sub-Advisor may utilize the services of a third party proxy
voting specialist in order to carry out its obligations
hereunder.
3. Prohibited Conduct
In providing the services described in this agreement, the Sub-
Advisor will not consult with any other investment advisory firm
that provides investment advisory services to any investment
company sponsored by Principal Life Insurance Company regarding
transactions for the Fund in securities or other assets.
4. Compensation
As full compensation for all services rendered and obligations
assumed by the Sub-Advisor hereunder with respect to the Fund, the
Manager shall pay the compensation specified in Appendix A to this
Agreement.
5. Liability of Sub-Advisor
Neither the Sub-Advisor nor any of its directors, officers,
employees, agents or affiliates shall be liable to the Manager, the
Fund or its shareholders for any loss suffered by the Manager or
the Fund resulting from any error of judgment made in the good
faith exercise of the Sub-Advisor's duties under this Agreement or
as a result of the failure by the Manager or any of its affiliates
to comply with the terms of this Agreement except for losses
resulting from willful misfeasance, bad faith or gross negligence
of, or from reckless disregard of, the duties of the Sub-Advisor or
any of its directors, officers, employees, agents (excluding any
broker-dealer selected by the Sub-Advisor), or affiliates.
6. Indemnification
The Manager agrees to indemnify and hold harmless the Sub-Advisor
from and against any and all claims, losses, liabilities or damages
(including reasonable attorneys' fees and other related expenses),
("Losses") howsoever arising, from or in connection with this
Agreement or the performance by the Sub-Advisor of its duties
hereunder, so long as the Sub-Advisor shall, after receipt of
notice of any claim or commencement of any action, promptly notify
the Manager in writing of the claim or commencement of such action.
The Manager shall not be liable for any settlement of any claim or
action effected without its written consent. Nothing contained
herein shall require the Manager to indemnify the Sub-Advisor for
Losses resulting from the Sub-Advisor's willful misfeasance, bad
faith or gross negligence in the performance of its duties or from
its reckless disregard of its obligations and duties under this
Agreement.
7. Supplemental Arrangements
The Sub-Advisor may enter into arrangements with other persons
affiliated with the Sub-Advisor or with unaffiliated third parties
to better enable the Sub-Advisor to fulfill its obligations under
this Agreement for the provision of certain personnel and
facilities to the Sub- Advisor, subject to written notification to
and approval of the Manager and, where required by applicable law,
the Board of Directors of the Fund. The Manager acknowledges and
agrees that the Sub-Advisor may utilize the non investment advisory
services of the following affiliates: AXA Xxxxxxxxx Investment
Management Asia Pacific Ltd, AXA Xxxxxxxxx Investment Management
Limited (UK), AXA Xxxxxxxxx Investment Management Ltd (Japan), and
Xxxx Xxxxxxxxx Research Center LLC.
8. Regulation
The Sub-Advisor shall submit to all regulatory and administrative
bodies having jurisdiction over the services provided pursuant to
this Agreement any information, reports or other material which any
such body may request or require pursuant to applicable laws and
regulations.
9. Duration and Termination of This Agreement
This Agreement shall become effective as of the date of its
execution and, unless otherwise terminated, shall continue in
effect for a period of two years and thereafter from year to year
provided that the continuance is specifically approved at least
annually either by the Board of Directors of the Fund or by a vote
of a majority of the outstanding voting securities of the Series
and in either event by a vote of a majority of the Board of
Directors of the Fund who are not interested persons of the
Manager, Principal Life Insurance Company, the Sub-Advisor or the
Fund cast in person at a meeting called for the purpose of voting
on such approval.
If the shareholders of a Series fail to approve the Agreement or
any continuance of the Agreement in accordance with the
requirements of the 1940 Act, the Sub-Advisor will continue to act
as Sub-Advisor with respect to the Series pending the required
approval of the Agreement or its continuance or of any contract
with the Sub-Advisor or a different manager or Sub-Advisor or other
definitive action; provided, that the compensation received by the
Sub-Advisor in respect to the Series during such period is in
compliance with Rule 15a-4 under the 1940 Act.
This Agreement may be terminated at any time without the payment of
any penalty by the Board of Directors of the Fund or by the Sub-
Advisor, the Manager or by vote of a majority of the outstanding
voting securities of the Series on sixty days written notice. This
Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Section 9, the
definitions contained in Section 2(a) of the 1940 Act (particularly
the definitions of "interested person," "assignment" and "voting
security") shall be applied.
Upon any termination of this Agreement, the Manager and the Fund
shall honor any outstanding transactions as at the time of
termination.
10. Amendment of this Agreement
No material amendment of this Agreement shall be effective until
approved, if required by the 1940 Act or the rules, regulations,
interpretations or orders issued thereunder, by vote of the holders
of a majority of the outstanding voting securities of the Series
and by vote of a majority of the Board of Directors of the Fund who
are not interested persons of the Manager, the Sub-Advisor,
Principal Life Insurance Company or the Fund cast in person at a
meeting called for the purpose of voting on such approval, and such
amendment is signed by both parties.
11. General Provisions
(a) Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the
purposes hereof. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of
Iowa. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
(b) Any notice under this Agreement shall be in writing, addressed
and delivered or mailed postage pre-paid to the other party at
such address as such other party may designate for the receipt
of such notices. Until further notice to the other party, it is
agreed that the address of the Manager for this purpose shall
be Principal Financial Group, Xxx Xxxxxx, Xxxx 00000-0000, and
the address of the Sub-Advisor shall be AXA Xxxxxxxxx
Investment Management LLC, c/o Xxxxxxx Xxxxxxxxx, 0 Xxxxxx Xxx,
Xxxxxxxx X, Xxxxxx, XX 00000 with copy to Chief Legal Counsel
at the same address.
(c) The Sub-Advisor will promptly notify the Manager in writing
of the occurrence of any of the following events:
(1) the Sub-Advisor fails to be registered as an
investment adviser under the Investment Advisers Act or
under the laws of any jurisdiction in which the Sub-Advisor
is required to be registered as an investment advisor in
order to perform its obligations under this Agreement.
(2) the Sub-Advisor is served or otherwise receives notice
of any action, suit, proceeding, inquiry or investigation,
at law or in equity, before or by any court, public board or
body, involving the affairs of the Fund, provided however,
it is understood that the Sub-Advisor is under no obligation
to take legal action, file claims or institute litigation on
behalf of the Fund.
(d) The Manager shall provide (or cause the Series custodian to
provide) timely information to the Sub-Advisor regarding such
matters as the composition of the assets of the Series, cash
requirements and cash available for investment in the Series,
and all other reasonable information as may be necessary for
the Sub-Advisor to perform its duties and responsibilities
hereunder.
(e) This Agreement contains the entire understanding and
agreement of the parties.
12. Miscellaneous.
(a) The Manager warrants, represents, and covenants that (i) it
has the full power and authority to employ the Sub-Advisor under
the terms of this Agreement and the appointment of the Sub-Advisor
is in accordance with the Prospectus, Statement of Additional
Information of the Fund, Registration Statement, Management
Agreement, Bylaws, Articles of Incorporation and applicable law or
regulation, and (ii) to the best of their knowledge, the Fund's
Prospectus, Statement of Additional Information and investment
objectives and guidelines are consistent with the governing
documents of the Fund, and applicable law and regulation.
(b) The Sub-Advisor will have no responsibility with respect to
the custody of the Series.
(c) The Manager and the Fund shall not use the name of the
Sub-Advisor or make representations regarding the Sub-Advisor
without the prior consent of the Sub-Advisor, such consent not
to be unreasonably withheld. Further, the Sub-Advisor agrees
that neither it nor any of its affiliates will in any way refer
directly or indirectly to its relationship with the Fund, the
Series, or the Manager or any of their respective affiliates in
offering, marketing or other promotional materials without the
express written consent of the Manager.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
PRINCIPAL MANAGEMENT CORPORATION
By /s/ Xxxxxxx X. Beer
Xxxxxxx X. Beer, Executive Vice
President and
Chief Operating Officer
AXA XXXXXXXXX INVESTMENT MANAGEMENT, LLC
By
APPENDIX A
The Sub-Advisor shall serve as an investment sub-advisor for the
Series identified below. The Manager will pay the Sub-Advisor, as full
compensation for all services provided under this Agreement, a fee,
computed and paid quarterly at an annual rate as shown below of the
Series' average daily net assets (but gross of the sub-advisor fee) in
the relevant month allocated to the Sub-Advisor's management. Cash
and cash equivalents shall be included in the Series net assets
calculation up to a maximum of 1.00% of the Series net assets. If the
Manager requests the Sub-Advisor to raise cash in the Series portfolio
in excess of 1.00% of the Series net assets for the purpose of funding
redemptions from the Series, such amount requested shall be included
in the Series net assets calculation.
In calculating the fee for a series included in the table, assets of any
unregistered separate account of Principal Life Insurance Company and any
investment company sponsored by Principal Life Insurance Company to which
the Sub-Advisor provides investment advisory services and which have the
same investment mandate as the series for which the fee is calculated,
will be combined with the assets of the series to arrive at net assets.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end
of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such
effectiveness or termination occurs.
International Value Fund I
Sub-Advisor's Fee as a Percentage of Average Daily
Net Assets
First $200 million
0.535%
Assets over $200 million
0.3325%
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